Will Robo-Advisers Replace Financial Planners?

Robo-Advisers – the much talked about digital solutions that provide automated financial advice – are on the rise. Are they a threat to financial planners or do they represent a useful gateway to more complex advice services?

The majority of Robo-Advisers currently focus on portfolio management and they can help with identifying objectives and cashflow planning – areas that a financial planner would also cover. However, whilst a financial planner tends to add more value to clients with complex affairs, Robo-Advisers may appeal to the smaller end of the market, bridging the gap between DIY-clients and those who prefer or require a personalised service. The introduction of the Retail Distribution Review has made it more difficult for financial planners to provide cost-effective advice to smaller clients. There are however a number of individuals in this market segment who will need advice and Robo-Advisers may be a good option for them.

Being an automated service, Robo-Advisers cannot provide personalised holistic advice. Financial planning is not only based on hard facts, but is also highly dependent on soft facts, such as personal preferences and priorities. The latter can only be identified in conversation with the client.

Giving the consumer more options can only be a good thing and it is likely that Robo-Advisers will play an increasingly important role. Every client is different in terms of advice requirements and Robo-Advisers and financial planners should therefore be able to co-exist. Robo-Advisers may even have a positive influence for financial planners, as client’s affairs may become more complex over time and the Robo-Adviser may be able to point out planning opportunities that will need the involvement of a financial planner.